Page 1 of 16 Department of Economics Prof. Gustavo Indart University of Toronto June 22, 2004 ECO 100Y – L0201 SOLUTIONSINTRODUCTION TO ECONOMICS Midterm Test #1LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS:1. The total time for this test is 1 hour and 45 minutes. 2. This exam consists of threeparts. 3. This question booklet has 16 (sixteen) pages. 4. Aids allowed: a simplecalculator. DO NOT WRITE IN THIS SPACE Part I /40 Part II 1. /5 2. /5 3. /5 4. /5 Part III 1. /10 2. /10 3. /10 4. /10 TOTAL /100

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PART I(40 marks) Instructions: •The multiple choice questions are to be answered using a black pencilor a black or blue ball-point penon the separate (SCANTRON) sheet being supplied. Be sure to fill in your name and student number on the SCANTRON sheet!When you finish your examination, place the SCANTRON sheetinside the question booklet. •Each question is worth 2 (two) marks. No deductions will be made for incorrect answers. •You may use the question bookletas a worksheet to answer questions, and then transfer your answers onto the SCANTRON sheet. Make sure that all your answers are transferred onto the SCANTRON sheet. In case of a disagreement, the answer to be marked is the one in the SCANTRON sheet.1. A society can increase its production possibilities curve through a) investment = depreciation b) positive net investment c) emigration of the labour force d) technological improvement with no change in resources e) both b) and d) are correct 2. Sean has received a $2,000 scholarship to attend university as a full time student this year. Sean therefore had to give up his full time job in which he earned $20,000 per year. In addition, Sean must pay tuition of $5,000; buy text books for $500 and enrol in a university residence which costs $10,000 per year. The opportunity cost for Sean to become a full-time university student thus becomes: a) $20,000 b) $25,000 c) $33,500 d) $15,500 e) $35,500 3. Assume that apples and oranges are substitute goods in consumption. Given the initial supply and demand curves for apples, a reduction in the price of oranges will tend to a) increase the price of apples b) increase the demand for apples c) increase the demand for oranges d) decrease the demand for oranges e) decrease the price of apples 4. With a given supply curve for sirloin steak, a normal good, a rise in household income will cause a) the equilibrium price to increase and the equilibrium quantity of sirloin steak to decrease b) both the equilibrium price and the equilibrium quantity of sirloin steak to increase c) both the equilibrium price and the equilibrium quantity of sirloin steak to decrease d) the equilibrium price to decrease and the equilibrium quantity of sirloin steak to increase e) none of the above 5. If demand is inelastic, a very good harvest will cause farm receipts to a) increase because of the increase in quantity that farmers can sell b) remain unchanged, because the increase in the quantity that can be sold will be matched by an equal decrease in price c) increase because of the downward movement along the supply curve, encouraging an increase in demand

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